By Bakani Ngulani, founder and CEO of BN Business Solutions, an accounting, taxation and related compliance firm dedicated to SMEs.
The headache of waking up one day only to find out your company does not exist is one that can be easily avoided.
Many small business owners might not be aware that the Companies and Intellectual Property Commission (CIPC), formerly known as CIPRO, issued a notice on December 12, 2017, via their website stating that certain companies who had failed to submit annual returns to CIPC as required by the Companies Act 71 of 2008 (the “Act”) would face deregistration on February 2, 2018. This applies to all entities registered with the CIPC, whether they be private, external, incorporated, public companies, not-for-profit organisations, or close corporations.
On the anniversary of every company, it is required to file annual returns accompanied by annual financial statements to confirm that the entity is still conducting business and to ensure that the CIPC has the latest information on all registered entities in the nation. Annual returns are filed electronically through the user-friendly CIPC eServices website where payment is deducted from a user’s preloaded account. A proof of submission in the form of an annual returns certificate is emailed to the entity in question.
When annual returns are due, the CIPC sends out notices through the entity’s registered details via SMS, e-mail, or registered address notifying the directors of their obligation to file annual returns. Should there be no response after two or more consecutive missed returns, the CIPC proceeds to issue a notice of deregistration and the status of the entity then becomes “Deregistration Process,” giving the directors a chance to file outstanding returns. If this is not remedied, the company is then placed under “AR Final Deregistered,” meaning it has been struck off the register.
Fortunately, recent changes in the CIPC-issued company registration documents now reflect the status of the entity based on the filing of the annual returns (i.e., in business, deregistration process, or AR final deregistration). Hence, business owners may check by obtaining a disclosure certificate from the CIPC website. This status is also linked to the South African Revenue Authority (SARS) and the CSD, affecting the overall entity compliance across all three.
The Consequences of Deregistration Due to Non-Compliance
The following are consequences of deregistration and affect both the entity and other entities it deals with. Though the list is not exhaustive, it provides a preview of how serious this matter is:
- The entity becomes null and void as it can no longer trade with its name nor enter into legally binding business transactions;
- The name becomes available for use by anyone who may be interested in it;
- Its assets, movable and immovable, are forfeited to the State as bona vacantia assets;
- No legal action may be taken against the deregistered firm by creditors. Hence, it is advisable for entities to check the current status of other entities on the CIPC website before engaging them for business.
Is There Life After Deregistering?
An entity deregistered due to non-compliance may be reinstated only if one or more of the following conditions are met as stated on the CIPC website:
- The company or close corporation was in business at the time of deregistration (sufficient documentary evidence in the form of bank statements for a period of six months before and six months after deregistration is required);
- Immovable property is registered in the name of the deregistered business; or
- The court issued an order reinstating the company or closing the corporation. In addition to meeting one of these conditions, supporting documents have to be submitted to support the reinstatement application. These can be found on the CIPC website and will be covered in a separate article.
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What To Do Now?
Deregistration may come as a shock to many business owners as they may be sitting with company documents yet their company has been deregistered. The CIPC is obliged to notify entities of the above and has duly done so by communication through registered details and publishing a list of companies under notices and gazettes. The sad reality is not many business owners are aware of their obligations, mostly due to ignorance. Upon initial registration, the CIPC issues this information with the company registration document, but filled with the excitement of owning a company, people hardly read or remember this a year later. In some cases, people purchase shelf companies and don’t fully update the details, or directors do not notify CIPC of changes in registered details, hence the CIPC cannot get a hold of them.
The list of companies being deregistered on February 2, 2018, is currently available on the CIPC website. The CIPC has made an effort to categorise these entities as private, external, incorporated or public companies, as well as not-for-profit organisations and closed corporations.
Though compliance is a cost to the business, non-compliance is more expensive as it costs more to reinstate a company than to file the returns timely.
